The DDT on equity-oriented investment is nearly 13 per cent. | Photo Credit: Thinkstock
New Delhi: Equity market investments seem lucrative as far as the returns are concerned among the other asset classes such as fixed income securities, government-backed investment schemes, bank deposits, etc. For short-term investment horizon, equity and equity-related investment are considered slightly risky as relatively compared to investment in government-backed saving options, bonds, bank and post office deposits, etc.
Over the course of long term, i.e., more than 5 years, equity and equity-related investments have given good returns, however, the equity investment might witness volatile fluctuation and bumpy rides in the duration.
The equity benchmark BSE Sensex has returned nearly 70 per cent in the last five years, while, the index has gained about 50 per cent in the last 30 months only. Within the last 30 month period, the headline index has dropped more than 10 per cent for a couple of time. This implies, that equity market investments are highly volatile in nature, however, an investment for a longer period might fetch unbeatable returns as compared to the aforementioned investment options.
Market participants tend to neglect the applicable taxes on equities which as a result, minimises the effective returns. There are certain taxes applicable to the trading of equity assets. According to the present tax structure, a number of taxes are applicable on buying and selling of stocks including short-term capital gain (STCG) tax, long-term capital gain (LTCG) tax, securities transaction tax, dividend distribution tax, etc.
The present dividend distribution tax (DDT) rate in India is 20.36 per cent which includes the cess and surcharge. DDT is paid by companies while they announce dividend for a particular period. The applicable STCG and LTCG on equity and equity-oriented investment are fixed at 15 per cent and 10 per cent, respectively. The DDT on equity-oriented investment is nearly 13 per cent. Securities transaction tax (STT) is applicable to buying and selling of shares. STT is fixed at 0.1 per cent and 0.025 per cent applicable on delivery and intraday trades. The LTCG on equity and equity-related investment was introduced by the Union Finance Minister in the Budget 2018.